Downgrades hit India Inc in Q3 | The Financial Express

Downgrades hit India Inc in Q3

Earnings estimates for several firms cut on lower margins, cost pressure

India Inc, Q3 results
Except for banks, IT services and automobiles, corporate earnings growth could remain subdued in FY24 as the economy is poised to decelerate sharply.

Earnings downgrades for India Inc are turning out to be broad-based and have so far ranged anywhere between 3% and 26%. Software services players, banks and auto manufacturers have turned in fairly good numbers for the December quarter, but in other sectors profit estimates are being pruned. For a sample of 365 companies (excluding banks and financials), net profits in Q3FY23 were flat year-on-year despite net sales having gone up by nearly 17% y-o-y as operating profit margins contracted by nearly 150 basis points.

Jefferies has lowered its earnings estimate for Avenue Supermarts by 6-8% for FY23-25 and revised the price target to `3,550 from `4,100 due to softer store addition and lower margins. Despite strong seasonality, the retailer’s gross margins fell by about 60 bps y-o-y on account of an inferior product mix.

The brokerage also reduced estimates for Torrent Pharma by 4-6% for FY23-25 as it anticipates higher depreciation and finance costs.

Kotak Institutional Equities has cut FY23-25 estimates for Pidilite by 7-10% and revised the fair value for the stock to `2,285 from `2,450 earlier. Pidilite’s operating profit margin contracted by 270 bps y-o-y and the recurring profit after tax fell 15.2% y-o-y, way below expectations. The brokerage has also lowered the earnings per share (EPS) estimates for Cipla for FY23-25 by 5-9%. Cipla missed revenue estimates for Q3FY23 partly due to lower local sales.

Motilal Oswal has slashed profit estimates for Vedanta. “We have reduced our metal price assumptions, leading to a 26%/23% reduction in FY23E/24 estimated adjusted profit after tax respectively,” analysts wrote, adding that softer prices of metals would be partly offset by lower input costs, namely thermal coal. 

The firm has also dropped EPS forecasts for United Spirits by 16%, 12% and 7% for FY23, FY24 and FY25, respectively. This has been led by the miss in Q3FY23, continuing cost pressures, and also the part sale of a popular segment in Q2FY23.

ICICI Securities has pruned the earnings estimates for Colgate by 4-5% for FY23-24; analysts highlighted a downside risk in lower-than-expected market share gains. Colgate’s gross margins contracted 70 bps y-o-y in the December quarter, while the Ebitda margin fell 170 bps y-o-y.

The earnings estimates for Petronet LNG for FY23-24 have been trimmed by 8-9% by Emkay Securities, which has pencilled in lower volumes and marketing margins.

Petronet reported a 47% y-o-y fall in adjusted Ebitda (earnings before interest, taxes, depreciation and amortisation) and net adjusted earnings plummeted by 64% y-o-y.

The December quarter earnings season has been a disappointing one so far. Apart from banks, software services players and auto manufacturers, not too many companies have turned in surprises. Estimates have been raised for Bajaj Auto; analysts at Nomura upped the EPS for FY23, FY24 and FY25 EPS by 5%, 7% and 4%, respectively, to above consensus levels. HSBC has raised the earnings estimates for Dr Reddy’s Laboratories.

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First published on: 30-01-2023 at 05:30 IST